Its no secret that the US Securities and Exchange Commissionhas been investigating Binance, the worlds largest crypto exchangewhich has no head office or formal address but processes12 billion worth of cryptocurrency transactions per day.But thecharge sheet filed today by the SEC in theDistrict of Columbia contains a list of 13 alleged violations of securities laws, some with unavoidable echoes of FTX, the crypto exchange thatcollapsed in spectacular fashion in November, triggering industrywide turmoil.
Among other allegations, the SEC claims that Binance and the companys CEO and founder, Changpeng Zhao, had the freedom to divert customer assets as they please to another Zhaoowned business, Sigma Chainan entity the SEC accuses of engaging in manipulative trading that artificially inflated the Binance trading volume.The SEC also alleges that Binance and Zhao concealed the commingling of billions of dollars of customer assets, which were delivered to yet another third party, Merit Peak Limited, also owned by Zhao.In the case of FTX, customer assets are alleged to have been commingled and passed to a sibling company, Alameda Research, to finance trading activity and debt repayment, among other things.
We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law, SEC chair Gary Gensler said ina statement accompanying the charges. The public should beware of investing any of their hardearned assets with or on these unlawful platforms, said Gensler.
In an email statement, Binance spokesperson Simon Matthews said the firm is disappointed with the SEC charges and attacked the regulator for failing to provide sufficient rules for crypto companies operating in the USby now, acommon refrain.
Another regulator, the Commodities and Futures Trading Commission, haspreviously leveled the same allegation.
The SEC also claims that Binance misled investors about risk controlssupposedly in place to protect against manipulative practices like wash tradinga process whereby crypto assets are sold in a circular pattern between a small number of accounts, creating an exaggerated appearance of demand and potentially inflating the price.
He also said that all user assets across all Binance platforms are safe and secure. In atweet published shortly after the SEC complaint, Zhao wrote 4a symbol he uses to dismiss allegations made against his company as baseless FUD (shorthand for fear, uncertainty and doubt).
But as dramatic as the charges seem, industry players were far from shocked. No one who operates in the space will be surprised by any of the charges, says Cory Klippsten, CEO at rival trading platform Swan Bitcoin.
Established by Zhao in 2017, Binance expanded rapidly with an emphasis on low fees, alternative crypto assets, and advanced investment products.